Third Industrial Revolution: Power to the People

27.05.2011 (All day)

“When petrol hits 150 dollars/ barrel, we will be in the endgame”. Speaking at the Luxembourg Financial Forum, Jeremy Rifkin, principle architect of the European Union’s Third Industrial Revolution plan, stated that the key to a company surviving the next 30 years will be its energy efficiency. In an Interview with LFF, Mr Rifkin elaborated on the theme of his lecture.

You said that over the last 30 years you underestimated climate change. What makes you say that?

I first wrote about it back in 1980 in a book called "Entropy", the first popular look at how industrial based activity affects climate. I continued to underestimate the feedback loops. The reason is that you can’t model the feedback loops sometimes until they happen and then you see them, and say, it is so obvious and this is terrifying!

The biosphere of this planet, that is everything from the stratosphere to the ocean depths, has a very complicated synergy in which geochemical processes are continuously interacting with living systems to maintain some sort of stability in terms of our oxygen cycles, or methane cycles. We don’t have the modeling yet to deal with that type of complexity.

I was interested to see how shocked people were about the power of Mother Nature in Japan. But this is nothing compared to what is going on now. If you take a look at the increasing number of tornados in the United States, the increased hurricane activity in the Caribbean, the changes in the oceans - the Atlantic and the Pacific - this is a very dangerous trend. We are in trouble; we are really in deep trouble as a species.

What do you say to young people who are afraid about their future?

We have every reason to be frightened. I teach at the Wharton School in the executive programme and we bring in business leaders from all around the world. We ask them: do you know what the primary economy of the world is? It is not a trick question, but they don’t know the answer. It is photosynthesis. We humans represent only one half of a percent of the biomass on this planet but we currently consume 31 percent of the net production of photosynthesis; and we are going to get to 10 billion people and that is not sustainable.

What we need is a new economic vision and game plan for the world that is practical, that can be implemented quickly and that will get us beyond carbon by 2040 so that the next generation and their children can flourish on this planet. It is doable but the question is: can we make it? We do have a plan in Europe and Europe is the first political space to have a plan.

What does it look like?

The key to the future is distributive capitalism. The third industrial revolution economic sustainability plan brings internet communications together with distributive renewable energies. For the younger generation this all makes sense. We are going to use internet technology to manage renewable energy. We have to imagine hundreds of millions of people producing their own green energy on their homes, their businesses and their factory, the sun off the roof, the wind off the walls. We are going to store that energy like we store digital data. Then we are going to share that energy with millions and millions of people across power lines that are converted into power energy internets.

You said in your lecture at the Luxembourg Financial Forum that the Third Industrial Revolution is a five pillar infrastructure. Can you explain what these pillars are?

The five pillars are the living infrastructure for a new economic model. Renewable energies are pillar one. Pillar two is, convert every single building in Europe into a micro power plant - which incidentally creates millions, and I said millions of jobs - and thousands of small and medium sized companies, because you have to convert the entire real estate stock of Europe.

Pillar three: put in hydrogen stores to store the energy; pillar four is to replace the current powerline network into an internet for energy so that we can share power all around Europe like we share music and information. Last but not least pillar five: make sure that we can plug our transport vehicles into the power infrastructure. If you develop the whole infrastructure together, the synergies create a new economic paradigm.

What is the reaction in the financial community about your ideas on a third industrial revolution? Are your ideas considered as being realistic or rather naive?

The discussion about green loans and green mortgages is a new one. I don’t sense that there is a negative reaction, people sense that this is the future. We have no plan B, so this is really where we have to go. Let me tell you an anecdote about Italy; this is probably the last place where you would expect this could happen. The commercial banks joined up and formed a consortium to finance green loans. Anybody who wants to can convert their home to a green power plant with solar and wind, mainly solar.

This costs, maybe, 30,000 euros; that is a lot. From the time you sign a contract with this company to make a conversion, 60 days later these solar power plants are on your roof. You pay back the loan out of the energy savings. The banks are willing to take the risk because there is no risk with the regular price of electricity going up.

What is the difference between this third industrial revolution and the former ones?

The first two industrial revolutions scaled vertically so the whole banking system scaled vertically too. Because energies like coal and gas were centralised they required vertical scale. The third industrial revolution scales laterally because the powers are distributive and collaborate: think of the Internet, think file sharing of music, Wikipedia, blogosphere. The banking and finance community has to begin to leverage investments that scale laterally and allow large numbers of smaller partners to come together as a risk community

But you said in your speech that the finance community is sleepwalking.

The investment banking community and private equity are both very concerned with quarterly figures. We have to become more concerned with short, mid and long-term return on investment.

From a more positive point of view, banks like big projects. Let us take the example of Rome which is undergoing a third industrial revolution project. The city lighting system will be entirely replaced by led bulbs and the city itself will become carbon neutral within the next 20 years. To this end, the city is receiving European Union investment funds but it will also be financed by private sector banks. This is a big project, so the banks will have to partner with each other and with others like private equity and pension funds. You have to think in a much more systemic way but you will need partners to make things happen.

Has Luxembourg the scale to launch such a third industrial revolution project?

With 500,000 people you should be able to make a transition to a third industrial revolution infrastructure quite easily with a return on investment over 5, 10 or 15 years. What you need is imagination, nothing else. I would think Luxembourg would be an ideal model for this in many ways. It is a financial capital and it is at the heart of the European community.

Germany is the country that is leading the third industrial revolution in Europe. I am advising Chancellor Angela Merkel and her country is actively working on all five pillars. If Germany can do this, other countries should follow its lead. In the UK we are in discussions with the Cameron Government and we have brought our policy teams together with theirs.

What about France?

France has all the potential in terms of its skills and energy, its technological prowess, its entrepreneurial riches. France can move quickly. The problem is that France is very centralised; centralised politically, centralised in terms of its meritocracy and centralised in terms of its economy; and of course the epitomy of this centralised concept is its nuclear power. On the other hand, there are French companies in our group, like Alsthom or Bouygues which are into distributive energy and which make things happen.

In France a lot of companies want to move forward. The electricity companies now have to understand that they have to work on two business models at the same time: the old one (oil, coal, gas) which is in a transition phase for the next 25 years, and the new one which is about renewable energies and which is where their money will be made. The EDFs of this world can run the grid and their job in the future will be to connect customers and manage their energy flows. Like in the music industry (music file sharing) or in the information society (blogosphere versus newspapers), the future is about power to the people. CW + ER